Top 10 States in America With the Lowest Taxes in 2016

Where can you find the lowest taxes in America? | Joe Raedle/Getty Images

When it comes to money, it’s not how much you make that matters, it’s what you keep. Numerous expenses hit pocketbooks across the nation, but taxes are often the largest financial burden on Americans. In addition to federal income taxes, the average family pays thousands of dollars in state and local taxes each year. However, tax bills can vary significantly between states.

WalletHub recently analyzed how state and local tax rates compare to the national median in all 50 states as well as the District of Columbia. The purpose was to determine which states pay the highest and lowest tax rates, and to see how each state stacks up against the national median. This study was based on four different types of taxation: real estate taxes, state and local income taxes, vehicle property taxes, and sales and excise taxes.

“Economic theory expects people to consider taxes when deciding where to live, but most studies show taxes only tangentially influence these decisions,” explains Stephanie Hunter McMahon, professor of law at the University of Cincinnati College of Law. “For example, schools drive the decision for many people as among localities and local property taxes are the primary source of local school funding. Taxes are, therefore, more influential for what they do or do not provide rather than the rate itself. This is to be expected because state and local taxes vary greatly, and these taxes are really payments for the goods and services state and local governments provide to the taxpayer and other members of the community.”

Which states have the lowest taxes?

Interestingly, taxpayers in the states with the highest taxes pay three times more than those in states with the lowest taxes. Red states impose lower taxes, with an aggregate rank of 21.75, compared to 29.78 for blue states. We’ve already taken a look at the states with the highest taxes. Now, let’s see which 10 states have the lowest state and local taxes, according to WalletHub.

10. Florida

Florida | Scott Olson/Getty Images

Effective total state and local tax rate: 9.03%

Average annual state and local taxes: $4,868

Difference between state and national average: -15.62%

Adjusted rank by cost of living: 11

Florida ranks as the No. 10 best state when it comes to tax bills. Low taxes and an abundance of sunshine are a couple big reasons why retirees are known to flock to Florida. The state does not have vehicle property taxes or income taxes. However, in order to help compensate, Florida has one of the worst sales and excise tax rankings in the nation.

9. South Carolina

South Carolina | Source: https://www.facebook.com/CharlestonCountyPRC

Effective total state and local tax rate: 8.8%

Average annual state and local taxes: $4,742

Difference between state and national average: -17.8%

Adjusted rank by cost of living: 9

South Carolina ranks No. 9 for the lowest state and local taxes. The state’s true stand-out is real estate taxes, which average only $1,009 per year. South Carolina also has some of the lowest gas taxes in the country. The average tax bill in South Carolina based on the national median household income is $4,742, compared to more than $5,700 in neighboring Georgia and North Carolina.

8. California

California | Stephen Dunn/Getty Images

Effective total state and local tax rate: 8.8%

Average annual state and local taxes: $4,741

Difference between state and national average: -17.81%

Adjusted rank by cost of living: 33

California ranks No. 8 for the lowest state and local taxes. The Golden State’s ranking may surprise people considering its high gas taxes, but its overall tax situation is favorable, at least until the cost of living is factored in. When adjusted for cost of living, California sinks to No. 33 for state and local taxes. It’s the only state in the top 10 that is significantly impacted by living expenses. Movers beware.

7. Idaho

Idaho | Source: Boise Parks & Recreation/Facebook

Effective total state and local tax rate: 8.48%

Average annual state and local taxes: $4,569

Difference between state and national average: -20.8%

Adjusted rank by cost of living: 5

Idaho ranks No. 7 for the lowest state and local taxes. The state has no vehicle property taxes, and ranks well on state income taxes and real estate taxes. Americans not particularly keen on Idaho may find comfort nearby. Every bordering state ranks well in WalletHub’s tax analysis. Oregon, the worst-ranking neighborhood state, still comes in No. 11 with an average tax bill of $4,943.

6. Tennessee

Tennessee | Rick Diamond/Getty Images

Effective total state and local tax rate: 7.95%

Average annual state and local taxes: $4,284

Difference between state and national average: -25.75%

Adjusted rank by cost of living: 4

Tennessee ranks No. 6 for the lowest state and local taxes. Households making a national median income pay about $4,284 in taxes. In comparison, neighboring states like Kentucky, Mississippi, and Arkansas have average tax bills of $6,449, $6,525, and $6,603, respectively. Tennessee is one of the worst ranking states for food tax rates, but the state doesn’t have a vehicle property tax. Tennessee also ranks No. 6 for income taxes and No. 13 for real estate taxes.

5. Nevada

Nevada | Ethan Miller/Getty Images

Effective total state and local tax rate: 7.72%

Average annual state and local taxes: $4,161

Difference between state and national average: -27.86%

Adjusted rank by cost of living: 7

Nevada ranks No. 5 for the lowest state and local taxes. The state ranks No. 8 in the nation for income taxes, and No. 12 for sales and excise taxes. Households making a national median income pay about $4,161 in taxes, lower than both Utah ($5,133) and Arizona ($5,224). However, Nevada ranks fairly average in terms of real estate taxes and vehicle property taxes. Nevada also takes in almost a billion dollars in gambling-related taxes and fees each year.

4. Wyoming

Wyoming | Karen Bleier/AFP/Getty Images

Effective total state and local tax rate: 7.45%

Average annual state and local taxes: $4,015

Difference between state and national average: -30.4%

Adjusted rank by cost of living: 2

Wyoming ranks No. 4 for the lowest state and local taxes, formerly No. 1. The Cowboy State isn’t a top choice to live in for most people considering it’s the least populated state in America, but it’s a favorable state for your taxes. Wyoming doesn’t have a state income tax, and ranks well for real estate taxes. Households making a national median income pay $4,015 in taxes. When adjusted for cost of living, Wyoming ranks No. 2 in the nation for lowest state and local taxes.

3. Montana

Montana | Source: City of Bozeman Official Facebook Page

Effective total state and local tax rate: 6.92%

Average annual state and local taxes: $3,728

Difference between state and national average: -35.37%

Adjusted rank by cost of living: 3

In case Wyoming wasn’t far enough north for you, Montana ranks No. 3 for the lowest state and local taxes. The state has the second-lowest sales and excise taxes in the country. Households making a national median income pay $3,728 in taxes, which is 35% below the national average. Cost of living is also favorable and doesn’t affect Montana’s overall tax appeal.

2. Delaware

Delaware | Nicholas Kamm/AFP/Getty Images

Effective total state and local tax rate: 6.02%

Average annual state and local taxes: $3,246

Difference between state and national average: -43.74%

Adjusted rank by cost of living: 1

Delaware ranks No. 2 for the lowest state and local taxes. Much like the state’s size, tax bills are small, coming in almost 44% below the national average. Delaware doesn’t have vehicle property taxes, and ranks among the best in the nation for real estate taxes and sales and excise taxes. It ranks slightly below average for income taxes, but adjusted for cost of living, Delaware is the best state for low state and local taxes. In addition to low taxes, Delaware’s flexible corporate laws and business-friendly government makes it home to more than one million business entities. In fact, over 60% of the Fortune 500 companies are incorporated in Delaware.

1. Alaska

Alaska | U.S. Fish and Wildlife Service/Getty Images

Effective total state and local tax rate: 5.69%

Average annual state and local taxes: $3,066

Difference between state and national average: -46.85%

Adjusted rank by cost of living: 6

Alaska may be too northern for most people to even consider living in, but residents enjoy the No. 1 state for the lowest state and local taxes. The state doesn’t have vehicle property taxes, and ranks near the top for low income taxes and sales and excise taxes. Real estate taxes are nothing to write home about, but households making a national median income only pay about $3,066 in taxes, almost 47% below the national average.